rightAre you pre-qualified or pre-approved for a loan?
Before you begin to shop for a new home, you should set up a time to meet with a lender, so they can figure out how much you can afford. This will put you in a better position as a buyer. This is when it is important to understand the distinction between being "pre-qualified" for a loan and "pre-approved" for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.

To get pre-qualified for a loan, your mortgage lender will collect information about your debt, income, and assets. Your lender will look at your credit profile and assess goals for a down payment in order to get an idea of different loan programs that would work for you. Your lender will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.

It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend.
Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.

To get pre-approved, you will
complete a mortgage application and provide your lender with various information verifying your employment, assets, and financial status (items such as W-2 forms, bank records, and credit card statements).  Your lender will review your mortgage options and determine which loan program is right for you. Once the application process is complete, you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.

A pre-approval letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and other certain conditions. If your financial situation changes (e.g. you lose your job), interest rates rise, or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.